Published March 2003

Variety of retirement plans meet small-business needs

By Kimberly Hilden
SCBJ Assistant Editor

When Allen Price decided to start his mortgage company a couple of years ago, offering an employee retirement plan was part of his plan for success.

“I needed a 401(k) plan to be able to attract quality employees,” said the president of Sound Lending Inc., who employed six at the time.

With the help of his financial adviser, Mary Basili of Edward Jones, Price was able to set up a 401(k) plan that included a 2 percent company match for contributing employees — and only required him to write a check for payroll deductions and employer contributions every pay period to be put into a trust account.

The set-up fees and management fees were reasonable, too, he said.

“It was really pretty simple ... and employees took the news very well, especially because of the fact that we’re doing a company match,” said Price, whose Everett-based company now employs 14.

And he’s not alone.

According to the federal government, more than 1 million U.S. businesses with 100 or fewer employees offer retirement savings plans, helping their work force to save for the future while helping the company to attract and retain quality workers and enjoy tax benefits.

Thanks to the tax relief act of 2001, small-business owners have another incentive for setting up a retirement plan: a tax credit of up to $500 during each of the plan’s first three years, Basili said.

There are a variety of plans to choose from, but most private-sector retirement vehicles are either Individual Retirement Accounts (IRAs), defined contribution plans or defined benefit plans, according to “Choosing a Retirement Solution for Your Small Business,” a joint publication of select federal agencies and the U.S. Chamber of Commerce.

IRAs, considered the most basic sort of plan, come in three varieties, including:

• The payroll-deduction IRA, which relies solely on employee contributions.
• The Simple Employee Pension (SEP) IRA, which relies solely on employer contributions.
• The Savings Incentive Match Plan for Employees (SIMPLE) IRA, which relies on both employer and employee contributions.

All three require little paperwork, something Charlotte Maris took advantage of as head of Maris & Associates CPAs of Everett.

“Being self-employed, you don’t have anybody contributing to your retirement plan, and it’s really difficult to put money away for retirement — that’s why I started with the SEP,” said Maris, whose company employs four.

But the SEP, which allows employers to decide whether to make contributions from year to year, wasn’t a good fit for her, Maris said, and three years ago she went to a SIMPLE IRA, which required her to make set contributions on a regular basis.

“With SEP, there’s ‘Will I have enough money to fund it?’ whereas this way, the employee can choose to participate, and I can match up to 3 percent,” she said. “It’s more convenient on my end and a more reliable retirement plan.”

A defined contribution plan such as the 401(k) also is an option for the small-business owner, Basili said, noting that increased demand for the plan, which has a higher maximum annual tax-deferred employee contribution than the SIMPLE IRA, has sparked competition among plan providers to lower administration costs.

This past year, for instance, Edward Jones began offering its “Owner K” plan, a 401(k) for owner-only businesses, that has fewer administrative requirements, Basili said.

But no matter the plan, small-business owners shouldn’t hesitate to set one up and help their employees save for the future, she said.

“In 1945, there were 35 people working for every person receiving Social Security, according to the Social Security Administration. Today there are three people for every person receiving Social Security. By 2030, there will only be two workers for every beneficiary,” Basili said. “Employers really need to take a look at that.”

Related: Is an "owner only" 401(k) right for you?

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